Budget 2011: Turnbull warns of NBN “charade”

Shadow Communications Minister Malcolm Turnbull has labelled the Federal Government’s continued approach of keeping the cost of building its flagship National Broadband Network project off the annual budget books a “charade”, in the wake of early take-up figures of the network’s services which the Coalition views as being less than expected.

In the budget papers released on Tuesday night, the Government provided further detail about how it would inject equity funding into the NBN project, allocating $18.2 billion in equity injections to NBN co over the proceeding years up until the 2014-15 financial year. The payments are instalments towards the Government’s total equity contribution to the NBN, which is expected to be $27.5 billion.

However, in a statement released tonight as part of the Coalition’s budget response, Turnbull said the Government had continued its “charade” in the budget papers of “keeping the entire cost of this needlessly expensive, excessively risky, anti-competitive project off the books”.

The Government, Turnbull said, assumed the NBN could be kept off-Budget because it would generate a commercial return, making the NBN worth not less than the cost of its initial investment.

“But eight months after the first sites were turned on in Tasmania, expectations of strong early revenues are looking overly optimistic,” the Member for Wentworth said, claiming that only eleven percent of households in Tasmania who had access to the NBN had signed up for services so far; less than predictions that 58 percent of households would by 2014-15 be purchasing services over the network and increasing their internet usage over today’s figures.

“The lacklustre performance metrics for the NBN so far bode ill for taxpayers,” Turnbull added. “The claim that the Government’s equity costs are limited to $27.5 billion (excluding $16 billion to be paid to Telstra) with the balance funded in debt is a very spurious one. There is no prospect of NBN being able to borrow on a no-recourse to the Government basis and so the NBN’s indebtedness will be just another category of Government debt. All of the NBN risk is with the Government.”

Other budget measures
Also in the Budget was the revelation that the Federal Government would not proceed with a funding program which has seen Australian internet service providers provided with grants to offer internet filtering options to customers; driven by a lack of interest in the project. The project prove less than popular in its first year – with just $200,000 of available funds of $9.8 million being used in the past 12 months.

Turnbull said the funding cut sent a signal that Communications Minister Stephen Conroy had realised that relying on the internet industry and parents taking responsibility was a more effective way to make online activities safe than wholesale censorship of Australia’s internet, as Labor’s controversial mandatory internet filter policy proposes.

Prime Minister Julia Gillard staunchly defended the program this afternoon, claiming that for some, the pending switch-off of analogue television had the potential to remove “perhaps the only companion in their lives”.

“The Coalition understands the cost of living pressures on all Australian households, and so supports any cost-effective assistance measures provided to Australians to switch to digital-only television,” Turnbull said. “However, there are serious concerns over Labor’s ability to roll out this program and accredit installation specialists, given the Government’s woeful previous record of administration with pink batts, green loans and school halls.”

35 COMMENTS

What a tool. How could the NBN not succeed in acquiring enough revenue to pay off its buildout costs? Add up the penetration rates of Optus, Telstra, iiNet, and all the other ISPs, and the *total* penetration rate is what you’ll end up with on the NBN as all those ISPs seamlessly migrate their customers over to the new network.

Economics 101 states infrastructure competition is economically unfeasible and extremely wasteful. The NBN is the perfect solution to maintaining competition while avoiding duplication of what is ultimately a natural monopoly.

I will believe that when I see the first people that didnt accept an NBN connection being cut off from the nodes by having their copper disconnected. Until that happens some customers will be happy with the status quo which will require the running of two networks. This will obviously impact on the NBNCos business case.

That would be a huge political decision to make prior to the next election.

The NBNCo Corporate Plan has a chart “Residential Fibre Subscriber Split by AVC Speed Tiers” (page 118) which shows 50% of fibre customers will connect at 12/1Mbps to 2028 and beyond. NBNCo are predicting the cheapest plan to be 12/1Mbps with 50GB at $53-$58 (page 105). Double the speed and 4 times the quota is only $10/month more, therefore I consider that the majority of users are choosing 12/1Mbps because they are price sensitive.

Calculating Take-Up of Basic Services (page 116) shows that only 70% of premises that fibre passes will connect. It also states that 13% will be wireless only premises and suggests that these customers are sensitive to the NBN Basic Service price.

Wireless prices are already cheaper ($20/month). Sure the quota isn’t as high but peak speeds are already faster than 12/1Mbps, meaning that for email and web browsing it will work. I suggest many of the 50% connecting at 12/1Mbps will be tempted to try wireless.

I saw the predictions, and they suck. They’re completely unrealistic- insanely conservative. I have no idea why they did that. Once people actually get a chance to use FTTH, no one will be tempted by wireless. Also CVC charges are idiotic. No wholesale network in the entire world has CVC charges.

all the financial forecasts/projections published by NBN Co. are, quite simply, “made up”… pulled out of their asses… they have no fook’n idea what 93% FTTP will really cost and how much revenue they will actually achieve. it’s a political exercise devoid of any economic rationale or even simple commonsense.

*Also CVC charges are idiotic. No wholesale network in the entire world has CVC charges.*

the whole NBN Co. house of cards is built on “CVC charges”. if you take away the “CVC charges”, you’re demolishing the charade or pretence of a “viable 7% ROI business model”.

NBN = CVC

if CVC = “idiotic”

then NBN = “idiotic”

no other fibre network has wholesale CVC charges because no pollies (other than our beloved Labor dipshits) are STUPID enough to contemplate building a national FTTP network for a country with a dispersed geography such as ours.

at a guaranteed 12mbps – where id either have to be fairly close to the exchange under DSL and about 3x the average ‘good’ speed (not max mind you but still) on offer from my current wireless option – for 40 a month … where can i sign up please?

thats the 12mbps service – hardly premium. and my target service from NBN would actually be the 50/20 service – which is at least mid-high given services on offer today (INCLUDING uploads, mark you).

those takeup expectations i always regarded as conservative, and im not surprised at Turnbull ‘cherry picking’ the tassie figures to make his argument. Brunswick on the mainland has similar figures but thats kind of expected for the rental nature of the suburb. Kiama and Armidale and – i can never remember the other mainland site – have much more sensible install figures in the 70s and up. taken across the board i would say the NBN expectations are not as much optimistic as you make out. take in mind both wireless options as well as wired and the $40/mo figure is quite reasonable.

as far as pulled out of their arses, its better than Abbott and co’s 6bn odd ‘wireless solution’ fielded at the last election. and given NBN have queried companies that have done FTTx rollouts before, there is plenty of relevance even given the different circs surrounding an aussie rollout against others (singapore, say). particularly in terms of “how many $hours does it cost to dig/lay X metres of fibred trench” for example – a figure which one can derive and use for the expected build cost as NBNco obviously have.

it also doesnt all rest on CVC charges – as Hackett pointed out you can modify the CVC (and other charge) figures and still make the expected figures. its not all set in stone as youd like to think. there are at least a couple of ways to spin the charges such that the 7% asking is made, while setting reasonable (not premium) figures for end users. so it is not as simplistic as CVC=idiotic then NBN=idiotic. running the network down to such a simplistic equation shows you up in a bad light – not NBNco.

as for penetrate rates, if voda, optus and telstra along with the minors add up to a (lets say for sake of argument) 90 percent of households with a fixed line and /that copper is pulled out and replaced/ for a fibre line, even accounting for those who would rather use wireless and thus opt out of a fibre copper replacement, you still sit in the ballpark of the 70% nbn penetration specced by the implementation report. which was the basis for the 7% return figure BTW. i know you bash penetrate rates but with a rescinding of the copper network that is a fair proxy for a final NBN user figure, at this point anyway.

“white elephants” non sequitur.
“brain dead” same. cut the ad-homs and take this on the merits and you might have a bit more credibility?

*at a guaranteed 12mbps…. for 40 a month … where can i sign up please?*

uh, that $40/mth relates solely to wholesale CVC charges – it’s only one of many cost components that make up the final retail price to the consumer.

*Kiama and Armidale and – i can never remember the other mainland site – have much more sensible install figures in the 70s and up.*

line installation or line activation? only the latter generates revenue.

*taken across the board i would say the NBN expectations are not as much optimistic as you make out.*

the only way “investing” $50bln could ever make any economic sense is that you attract substantial additional gross retail spend on fixed-line services. the revenue expectations HAVE to be optimistic to justify pushing fibre to (almost) every home.

*given NBN have queried companies that have done FTTx rollouts before, there is plenty of relevance even given the different circs surrounding an aussie rollout against others (singapore, say). particularly in terms of “how many $hours does it cost to dig/lay X metres of fibred trench” for example – a figure which one can derive and use for the expected build cost as NBNco obviously have.*

the only way you can get an accurate handle on the actual costs of 93% FTTP is to conduct a detailed, nationwide engineering cost survey. drive through your local suburb and you’ll realise there’s a remarkable diversity of building structures and street layouts. each area will require individually-tailored engineering plans. bottomline, trenching fibre is a highly-labourious process with few economies of scale.

you can’t just estimate the cost for one particular street and then extrapolate across the entire country. the labour manhours required will vary depending on the nature of the location, type of estate, existing regulations, condition of trenches/ducts, etc.

and, FFS, you definitely can’t benchmark against Singapore – consider the preponderance of high-density dwellings and different labour practices/regulations, etc.

*it also doesnt all rest on CVC charges – as Hackett pointed out you can modify the CVC (and other charge) figures and still make the expected figures.*

no, you can’t. Hackett’s example was totally disingenuous. on the one hand, he’s talking about the need to provision CVC for 100/20 subscribers. on the other hand, the calculations he uses to suggest income-neutrality for NBN Co. are entirely based on 12/1 plans. (ivory tower academics call that “partial equilibrium analysis”.)

bottomline, this whole NBN debate is full of vested interests. there’re no “heroes” or “consumer champions” in this whole political game. put simply, Telstra’s competitors who rely on “open access” are (relatively) fook’d if the Government green-lights FTTN as opposed to FTTP. hence, you get all this peddling of FUD bullshit that “FTTN is not possible”, etc. everyone loves a government hand-out – even businesses.

*i there are at least a couple of ways to spin the charges such that the 7% asking is made, while setting reasonable (not premium) figures for end users.*

no, there isn’t. it doesn’t matter whether you’re paying through your left nostril or your right nostril – you’re still paying through your nose!

I’ll have to start calling you Jack Dawkins… the artful dodger instead of Mr. Contradiction alain… because you will only reply to me on your terms (even though you swore you never ever would again, following me highlighting your unanswerable, ridiculous contradictions – outlined again for all to see, below…LOL).

Pitifully, when I ask of you, you run, hide and go missing (whether you are actually a pick-pocket well that’s another issue entirely)…

I note too that in your trolling comment above, you too were unable to add even minimal reference to comms as you subserviently back the “cost only views of minion, extremist, dries”…!

((( FFS, why don’t you guys learn to think for yourselves, instead of having the far right of the Libs do it for you?)))

*Now to your Contradictions – You said
1. You betcha the NBN will be a success that’s how monopolies work.
Then one week later you said
2. The NBN will fail like HFC before it.
Please explain how both of these claims can possibly be…?*

there’s no contradiction.

in fact, you could employ a very simple analogy of a market manipulator trying to corner or squeeze the physical silver market.

in order to corner the silver market, you have to spends loads of money buying up existing inventory at progressively higher and higher prices – you end up with “monopolised” silver reserves with a ridiculously-high average cost price.

now, you can gradually dribble some silver into the market and sell to the relatively-inelastic segments at artificially-high prices. however, over time, high prices will encourage users of silver to economise on usage or substitute outright into other metals (e.g. platinum or gold jewellery instead of silver).

while demand for silver is slowly decimated by artificially-high prices, the interest cost of financing your huge inventory-holdings is burning a hole through your pockets.

pretty soon, you’re forced to release less and less silver into the market to offset the impact of falling demand in order to maintain prices and revenue. eventually, the whole scheme fails and your lenders take possession and liquidate your huge, overpriced inventory… and prices collapse overnight.

NBN Co. bears many similarities:

(i) they’re spending billions buying up competitor networks just to shut them down (similar to hoarding greater and greater amounts of silver which sits fallow in the warehouse and doesn’t yield any cashflow but adds to your capital burden).

(ii) they’re creating an artificial scarcity of bandwidth by charging extortionary rates for data ($20/Mbps) in order to gouge as much as possible from the relatively-inelastic segments of the market.

(iii) these artificially-high prices will force internet subscribers to economise on usage (viz. major ISPs signalling the end of “unlimited plans”) or substitute into other non-NBN platforms (e.g. marginal substitution of “wireless” for “fixed” by low usage consumers; congregation around existing, “cheap” fibre (exempted from “cherry-picking legislation”) by businesses; more eyeballing of FTA TV and satellite pay-TV as opposed to IPTV; etc.)

(iv) should demand for NBN services, in terms of gross spend, fall short of budgeted projections, NBN Co. will be forced to raise CVC charges even higher (or further restrict bandwidth and gouge inelastic users even more) in order to try to maintain revenue and returns.

(v) eventually, the whole fixed-line infrastructure becomes so uncompetitive and uneconomic to access and NBN Co.’s revenue growth model falls apart like a house of cards. the ruling Government will stop pouring taxpayers’ money into the universally-despised and overpriced government monopoly and appoint an administrator who will liquidate NBN Co. and sell-off the assets at 20c in the dollar.

@ Merlin “Also CVC charges are idiotic. No wholesale network in the entire world has CVC charges.”

I think you will find that CVC charges are exactly the way most wholesale networks are run. You buy x Mbps at $x. It is only end-user connections where you pay for quota and/or speed.

There are four options for providing NBN services at a reasonable cost
1. speed restrictions (AVC)
2. quota restrictions (CVC)
3. speed and quota restrictions
4. no restrictions, but congestion

Personally I would prefer unlimited speed and quota restrictions, because that is what is important to me. Unlimited speed is likely to lead to more downloading which will reduce the CVC $/Mbps price. Restricting speed simply restricts the benefit of the NBN and makes other technologies more attractive.

I see you have had a tough pill and again replying to me…LOL. But, don’t make me call you a “liar”…!

As such, why do you pick and choose to respond to some of my comments and not others (like when I ask a twicky question…LOL) particularly when you said “you would never, ever correspond with me ever again”…

YOU SAID THAT DIDN’T YOU (oh look, here’s one of those twicky questions right now)!

Does YOUR word mean nothing?

But since your word does mean nothing and you ARE AGAIN corresponding …

Back to your ridiculous comms contradictions (which your fellow party member/clone tried to cover for you…LOL)… His desperado novel, was shot to pieces in just a few words, but at least he tried, you just keep running…don’t you, Forrest!

You NEVER ask tricky questions, you think you do, even if the questions are answered and they have been multiple times as you well know you ignore the answers then pretend over and over repeating the same rubbish as if they have not.

Why don’t you answer for him again, since your last effort was so good [sic]…LOL…

Obviously you political plants, believe it’s ok to spew forth your BS, but when someone asks how can that be, there’s firstly stunned silence, then when asked again, you attack with begone troll…or I have answered already…

LOL…! you are compelled aren’t you…toshP300…like a fly to my web…! That ridiculous drivel novel you supplied last night, shot down in just two lines, has you embarrassed doesn’t it?

AND rightly so…

Anyway speaking of laughable…Just to revisit your Tailgator accusations (even after you being told Tailgator is NOT me) I would ergo, like to exercise my right of an equally “off topic reply”!

I will admit, initially I was taken aback and somewhat offended by your reference. Especially, when you added words like, Whirlpool’s notoriously known, noxious troll, Tailgator!

BUT… As usual, it seems you have everything **se-up, don’t you and you typically, defensively, haven’t been honest at all, have you?

After checking the Whirlpool records of the 2 of you… You toshP300 are sitting at the “bottom of the Whirlpool ratings”, having a “low aura”! And rather hypocritically, after commenting in relation to my recent exclusion from here, you are in the penalty box for your disrespectful commenting demeanour.

However, while you are considered, as low as one can get (being on the bottom rung) Tailgator is sitting up towards the top… rated “pervasively bright”. So toshP300 “low “vs. Tailgator “pervasively bright”… yet you defiantly and against the facts (gee, just as you do with the NBN) have the audacity to claim Tailgator to be the troll?

As such, (low) toshP300, I now see you must have been looking up to me, by comparing me to your “Whirlpool pervasively bright, superior” and it was rightly so, a sign of respect referring to me as Tailgator…! So please, feel free to refer to me as you superior, Tailgator (although I stress to the actual Tailgator – I am not intending to ride upon his impeccable reputation)… because it is clear who actually is and who actually isn’t the notoriously “officially low” noxious Whirlpool troll and it certainly ISN’T Tailgator…!

*How could the NBN not succeed in acquiring enough revenue to pay off its buildout costs? Add up the penetration rates of Optus, Telstra, iiNet, and all the other ISPs, and the *total* penetration rate….*

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